Lumen Technologies Inc at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: James Schneider - Goldman Sachs - Analyst : So I think it's fair to say that AI is a running theme at this conference. We've heard from many companies this morning, including Verizon and telecom space, about what AI means to them. You've made a series of announcements recently on this topic. I'd like to unpack what it means for your business, starting with the Microsoft-related deal along with other customers that you announced. Maybe just kind of give us some incremental details if you can on the agreement. I'd like to dive in from there.

Question: James Schneider - Goldman Sachs - Analyst : Yeah. And then maybe just kind of give us a sense of, like how should we think about, like with all the capacity you're building for this large -- the set of first customers in the first $5 billion of the deal? What kind of capacity future are they buying for those data centers? Maybe give us a sense REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 11:25PM, LUMN.N - Lumen Technologies Inc at Goldman Sachs Communacopia & Technology Conference of roughly how many data centers you can interconnect with this. Is it mainly a kind of a training-first and then inference-later kind of use case? Or how should we think about the use case and how the profile evolves over time?

Question: James Schneider - Goldman Sachs - Analyst : Maybe talk about some of the competitive advantage. I think you kind of touched on it already, but what are the most important drivers of that? Is the fact that you already had the conduit and it was like faster time market effectively for that? How much of it was the unique routes? How much of it was your sort of willingness to do dark fiber deals? And was there anything that was just kind of obviously given Kate's historic relationship with Microsoft, was that a big factor in the deals as well?

Question: James Schneider - Goldman Sachs - Analyst : I guess maybe give us a little bit more sense if you can. You mentioned over 10 customers. Can you maybe give us a little bit of sense of the diversity of those customers? I think you talked about broad strokes, some social media type companies. Is it also large corporates? Or is it more kind of hyperscaler social media companies with a large kind of internal data center presence? And how many of them actually know how to actually fuel dark fiber and manage dark fiber? Because that's not a common skill that most companies have. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 11:25PM, LUMN.N - Lumen Technologies Inc at Goldman Sachs Communacopia & Technology Conference

Question: James Schneider - Goldman Sachs - Analyst : Want to get to some mechanicals to the extent that you can talk about it. But just give us a sense of the additional pipeline of $7 billion you mentioned. How does the profile of those companies or potential customers differ from the initial $5 billion? Meaning, is there a broader set of like small, like large enterprises but not in that kind of traditional hyperscaler AI set? Or how do we think about that?

Question: James Schneider - Goldman Sachs - Analyst : And just if you think about the very long term, I mean these are 20-year deals, right? So I guess, I mean a lot of investors I speak with are trying to dimension the total opportunity for -- let's see, just take just those customers that are contemplated in that initial tranche of two sets of deals. Would that build enough capacity forever for those customers? Or are we talking about 5% of the capacity they may need over 10 to 20 years? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 11:25PM, LUMN.N - Lumen Technologies Inc at Goldman Sachs Communacopia & Technology Conference

Question: James Schneider - Goldman Sachs - Analyst : Can you maybe give us some sense about how these deals just work mechanically and from a financial perspective? I mean, you took up your 2024 free cash flow guidance as a result of the deal, how does the cash flow flow? Meaning you see that cash out front, you outlined some of that in terms of CapEx later on, your tax on that. So give us a sense of like the lag times here. And how does the net cash flow kind of accrete to the company over time? Does it sort of just go higher over time with escalators there? Or how do we think about how to model this?

Question: James Schneider - Goldman Sachs - Analyst : Maybe just one last piece on this. I guess relative to the $5 billion itself, I think at last year's Investor Day, you talked about having 6 million intercity fiber miles, and you want to double that over time. Help us understand whether this announcement today or recently was incremental to that. Or just it helps you accelerate that with prefunding? And maybe kind of is the Corning deal also kind of incremental to what you had already planned to do? Or was it kind of just an additional to what you had really thought as being a pretty big customer of theirs anyway?

Question: James Schneider - Goldman Sachs - Analyst : And then relative to that, I mean, I think you talked about the fact that was -- you were the only people at the table for the initial deal. Kind of curious, I mean, obviously, now I think historically, fiber services has always been a relatively competitive space. You do have competitors. I'm kind of curious what you expect the competitive response to be on the next set of the deals or the next deals after that? And sort of like what do you feel like your differentiators in the first deal or maybe the same going forward?

Question: James Schneider - Goldman Sachs - Analyst : Long go to other parts of your business, but I just want to also kind of leave with relative to your guidance for this year. Took down your EBITDA guidance by about $250 million in this last set of results. How much of that was sort of driven by the costs associated with the up-front cost of doing these deals? Any part of it that was driven by the legacy declines that you're seeing? So how do you kind of frame those two factors?

Question: James Schneider - Goldman Sachs - Analyst : Now just in terms of the overall kind of core business, you've talked about public sector being the first segment to see revenue stabilization. Are these deals we just talked about going to sort of pull forward materially the large enterprise stabilization or not? Or is public sector is still going to be the first thing to turn yet?

Question: James Schneider - Goldman Sachs - Analyst : Now over the past couple of decades, I would say, you and your predecessor companies and another in the telecom space as well have lost a lot of share in SMB specifically, some of your telecom peers seem excited about the ability to win share back either through fiber, fixed wireless or other means. Is that a focus area for you at all that segment of the market? And how much share do you think you have in that segment of the market in SMB and where do you think it goes?

Question: James Schneider - Goldman Sachs - Analyst : Switching to our mass market business for a moment. it's obviously been a lot more topical recently. You've seen T-Mobile announced a few JV deals. They've talked about the impact of convergence. Now you saw Verizon for Frontier last week get announced. How do we think about sort of the strategic review for that business for you? And I guess, have you seen an uptick in interest in that business from external visitors -- bidders over the last few months?

Question: James Schneider - Goldman Sachs - Analyst : Can you help us understand your footprint a little bit better for the copper assets you have? You want to upgrade them to fiber. Kind of what would it be in terms of cost of path to upgrade those remaining assets? And if you think about kind of both your fiber and copper assets, kind of how do you think about the overlap you see both with the cable and other providers out there in the market?

Question: James Schneider - Goldman Sachs - Analyst : I'd like to round out the discussion with a couple of financial questions as to sort of as we wrap up here. Maybe talk about the kind of financial implications. You alluded to it before, but you said 100 -- excuse me, $1 billion of incremental cost-cutting actions that you announced is last quarter. You said EBITDA is going to be down next year because of declines then pop back up in '26 to around 2024 levels. Can you give us any kind of sense of the moving parts to this? And as we get to the point of EBITDA growth in stabilization in '26, where will revenues be from a kind of a growth perspective?

Question: James Schneider - Goldman Sachs - Analyst : And relative to the balance sheet, I think it's fair to say that clearly, like people feel probably more comfort in the overall situation of posture today than they did before. You also announced the debt exchange just very recently, I believe it was last week. From an asset sale perspective, is there anything else besides the consumer business do you think you could do?

Question: James Schneider - Goldman Sachs - Analyst : And then just maybe one question I've been getting from investors quite a bit is given the stock performance in the past few months, kind of begs the question about if you really want to deliver the balance sheet and give yourself a lot of comfort there, one thing you could consider is stock flow. Is that something that's under consideration?

Question: James Schneider - Goldman Sachs - Analyst : Fantastic. I think with that, we're just about out of time. So thank you very much, Chris, for being with us today. We appreciate it.